HAIN CELESTIAL GROUP INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto for the period ended September 30, 2022 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. Forward-looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Forward-Looking Statements” in the introduction of this Form 10-Q. Overview The Hain Celestial Group, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company,” and herein referred to as “Hain Celestial,” “we,” “us” and “our”), was founded in 1993 and is headquartered in Lake Success, New York. The Company’s mission has continued to evolve since its founding, with health and wellness being the core tenet. The Company continues to be a leading marketer, manufacturer, and seller of organic and natural, “better-for-you” products by anticipating and exceeding consumer expectations in providing quality, innovation, value and convenience. The Company is committed to growing sustainably while continuing to implement environmentally sound business practices and manufacturing processes. Hain Celestial sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, drug, and convenience stores in over 75 countries worldwide. The Company manufactures, markets, distributes, and sells organic and natural products, providing consumers with the opportunity to lead A Healthier Way of Life ® . The Company’s food and beverage brands include Celestial Seasonings ® , Clarks™, Cully & Sully ® , Earth’s Best ® , Ella’s Kitchen ® , Frank Cooper’s ® , Garden of Eatin’ ® , Hartley’s ® , Health Valley ® , Imagine ® , Joya ® , Lima ® , Linda McCartney’s ® (under license), MaraNatha ® , Natumi ® , New Covent Garden Soup Co. ® , ParmCrisps ® , Robertson’s ® , Rose’s ® (under license), Sensible Portions ® , Spectrum ® , Sun-Pat ® , Terra ® , The Greek Gods ® , Thinsters ® , Yorkshire Provender ® and Yves Veggie Cuisine ® . The Company’s personal care brands include Alba Botanica ® , Avalon Organics ® , JASON ® , Live Clean ® and Queen Helene ® . In fiscal year 2022, the Company announced its “Hain 3.0” long-term strategy, to support the Company’s continued evolution to position the Company to be a global health and wellness company with industry-leading topline growth. The drivers of growth for Hain 3.0, which the Company intends to fund through productivity initiatives, are: • Distribution, • Innovation, and • Marketing. We have re-segmented the brand portfolio with a more global view to where we have the most growth potential. As a result, we have migrated from a strategy focused on rejuvenating North America behind a construct of “Get Bigger” and “Get Better” brand categories to one that focuses on growing global brands in categories where we think we have the most potential. The categories we have identified are called Growth and Fuel: • The Growth category includes Turbocharge brands and Targeted Investment brands. Turbocharge brands are leading-share brands in categories that we believe provide the most opportunity for growth. The Targeted Investment brands are made up of leading-share brands in lower-growth categories. The Growth category consists of our brands in snacks, tea, baby, yogurt, plant-based meat, non-dairy beverages and personal care. • The Fuel brands are stable brands that will be leveraged to fuel investment in the Growth brands. The Fuel brands are premium pantry brands with scale, in categories such as soup, cooking oils and nut butters. We are establishing the foundation and the tools to deliver Hain 3.0 by stabilizing our business, delivering strong margin improvement and continuing to grow our net sales. Additionally, as part of Hain 3.0, we plan to continue to simplify our brand portfolio as we continue to identify brands that are declining and have low margins, which we refer to as Simplify brands. We view Simplify brands to be subscale declining businesses that have limited long-term potential for the Company, and therefore expect to manage such brands for profit until they are potentially divested, likely over the course of the next several years. We see momentum in our Growth brands and believe that we are well-positioned for the long term. As Hain 3.0 progresses, acquisitions are expected to play a role to help us strengthen our position in our priority categories. 30 Table of Contents Supply Chain Disruptions and Higher Costs We continue to experience disruption in our supply chain network, including the supply of certain ingredients, packaging, and other sourced materials, which has resulted in higher costs, including escalating transportation and other supply chain costs. Both the disruptions and higher costs have resulted in higher inventory levels. We expect this higher cost environment to continue, although we expect these higher costs to be partially mitigated by pricing actions we have implemented to date and further pricing actions that we plan to implement in fiscal year 2023. It is possible that more significant disruptions to our supply chain could occur. Russia-Ukraine War Although we have no material assets in Russia, Belarus or Ukraine, our supply chain was adversely impacted by the Russia-Ukraine war during the fiscal year ended June 30, 2022 and the quarter ended September 30, 2022, and we continue to face other challenges and risks arising from the war. In particular, the war has added significant costs to existing inflationary pressures through increased energy, fuel, and raw material prices. Further, beyond increased costs, labor challenges and other factors have led to supply chain disruptions. While, to date, we have been able to identify replacement raw materials where necessary, we have incurred increased costs in doing so. For example, the supply of sunflower oil has become constrained, compelling us to identify and procure alternative oils. The war has also negatively impacted consumer sentiment, particularly in Europe, with some consumers shifting to lower-priced products, which has somewhat affected demand for our products. Additionally, we face increased cybersecurity risks, as companies based in the United States and its allied countries have become targets of malicious cyber activity. While we are continuing to monitor and manage the impacts of the war on our business, the extent to which the Russia-Ukraine war and the related economic impact may affect our financial condition or results of operations remains uncertain. COVID-19 The COVID-19 pandemic continues to contribute to challenging and unprecedented conditions. Challenges exacerbated by the ongoing effects of the pandemic include but are not limited to: • manufacturing and supply chain challenges, including labor market shortages; • a shifting demand environment as a result of changing consumer behaviors amid uncertain economic conditions; and • increased costs of operating our business and managing our supply chain. If we are unable to successfully manage our business through the continued challenges and uncertainty related to the COVID-19 pandemic, our business and operating results could be materially adversely affected. Acquisition On December 28, 2021, the Company acquired all outstanding stock of Proven Brands, Inc. (and its subsidiary That's How We Roll LLC) and KTB Foods Inc., collectively doing business as "That's How We Roll" ("THWR"), the producer and marketer of ParmCrisps® and Thinsters®. See Note 4, Acquisitions and Dispositions , in the Notes to the Consolidated Financial Statements included in Part II, Item 8 of Form 10-K for additional details. 31 Table of Contents Comparison of Three Months Ended September 30, 2022 to Three Months Ended September 30, 2021 Consolidated Results The following table compares our results of operations, including as a percentage of net sales, on a consolidated basis, for the three months ended September 30, 2022 and 2021 (amounts in thousands, other than per share data and percentages, which may not add due to rounding): Three Months Ended Change in September 30, 2022 September 30, 2021 Dollars Percentage Net sales $ 439,351 100.0% $ 454,903 100.0% $ (15,552) (3.4)% Cost of sales 345,016 78.5% 349,485 76.8% (4,469) (1.3)% Gross profit 94,335 21.5% 105,418 23.2% (11,083) (10.5)% Selling, general and administrative expenses 74,951 17.1% 73,989 16.3% 962 1.3% Amortization of acquired intangible assets 2,788 0.6% 2,095 0.5% 693 33.1% Productivity and transformation costs 773 0.2% 3,983 0.9% (3,210) (80.6)% Proceeds from insurance claim — —% (196) —% 196 (100.0)% Operating income 15,823 3.6% 25,547 5.6% (9,724) (38.1)% Interest and other financing expense, net 7,677 1.7% 1,856 0.4% 5,821 313.6% Other income, net (1,790) (0.4)% (788) (0.2)% (1,002) 127.2% Income from operations before income taxes and equity in net loss (income) of equity-method investees 9,936 2.3% 24,479 5.4% (14,543) (59.4)% Provision for income taxes 2,631 0.6% 4,542 1.0% (1,911) (42.1)% Equity in net loss of equity-method investees 382 0.1% 526 0.1% (144) (27.4)% Net income $ 6,923 1.6% $ 19,411 4.3% $ (12,488) (64.3)% Adjusted EBITDA $ 36,029 8.2% $ 47,316 10.4% $ (11,287) (23.9)% Diluted net income per common share $ 0.08 $ 0.20 $ (0.12) (60.0)% Net Sales Net sales for the three months ended September 30, 2022 were $439.4 million, a decrease of $15.6 million, or 3.4%, as compared to $454.9 million in the three months ended September 30, 2021. On a constant currency basis, adjusted for the impact of acquisitions, divestitures and discontinued brands, net sales decreased approximately $3.8 million, or 0.8%, from the prior year quarter due to a decline in the International reportable segment, partially offset by growth in the North America reportable segment. Further details of changes in net sales by segment are provided below in the Segment Results section. Gross Profit Gross profit for the three months ended September 30, 2022 was $94.3 million, a decrease of $11.1 million, or 10.5%, as compared to the prior year quarter. Additionally, gross profit margin of 21.5% was lower when compared with 23.2% in the prior year quarter. The decrease in gross profit was driven primarily by the International reportable segment, mainly due to lower net sales in the United Kingdom and Europe operating segments, higher energy and supply chain costs, as well as under absorption of overhead costs at our manufacturing facilities when compared to the prior year period. The North America reportable segment had an increase in gross profit mainly driven by top-line sales due to pricing increases and cost improvements driven by higher productivity, partly offset by inflation and lower net sales in the Canada operating segment when compared with the prior year quarter. 32 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses were $75.0 million for the three months ended September 30, 2022, an increase of $1.0 million, or 1.3%, from $74.0 million for the prior year quarter. The increase was primarily driven by the North America reportable segment and Corporate, with the United States operating segment accounting for the increase in the North America reportable segment due to the acquisition of THWR. The increase was partially offset by a decrease in selling expenses primarily in the International reportable segment as well as efficiencies gained from the Company's productivity and transformation initiatives. Amortization of Acquired Intangible Assets Amortization of acquired intangibles was $2.8 million for the three months ended September 30, 2022, an increase of $0.7 million from $2.1 million in the prior year quarter due to the acquisition of THWR in the second quarter of the prior fiscal year. Productivity and Transformation Costs Productivity and transformation costs were $0.8 million for the three months ended September 30, 2022, a decrease of $3.2 million from $4.0 million in the prior year quarter. The decrease was primarily due to reduced spending related to productivity and transformation initiatives as the current transformation effort approaches its conclusion. Operating Income Operating income for the three months ended September 30, 2022 was $15.8 million compared to $25.5 million in the prior year quarter as a result of the items described above. Interest and Other Financing Expense, Net Interest and other financing expense, net totaled $7.7 million for the three months ended September 30, 2022, an increase of $5.8 million, or 313.6%, from $1.9 million in the prior year quarter. The increase resulted primarily from a higher outstanding debt balance driven primarily by the acquisition of THWR in the second quarter of the prior fiscal year as well as share repurchase activity during fiscal 2022. The increase is also attributable to higher borrowing rates compared to the prior year quarter. See Note 9, Debt and Borrowings , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Other Income, Net Other income, net totaled $1.8 million for the three months ended September 30, 2022, compared to $0.8 million in the prior year quarter. The change was primarily attributable to higher unrealized foreign currency gains, partially offset by lower gain on sale of business. Income from Operations Before Income Taxes and Equity in Net Loss of Equity-Method Investees Income from operations before income taxes and equity in net loss of our equity-method investees for the three months ended September 30, 2022 was $9.9 million compared to $24.5 million in the prior year quarter. The decrease was due to the items discussed above. Provision for Income Taxes The provision for income taxes includes federal, foreign, state and local income taxes. Our income tax expense was $2.6 million for the three months ended September 30, 2022 compared to $4.5 million in the prior year quarter. The effective income tax rate was an expense of 26.5% and 18.6% for the three months ended September 30, 2022 and 2021, respectively. The effective income tax rate for the three months ended September 30, 2022 increased due to tax expense related to stock-based compensation and uncertain tax positions. The effective income tax rate for the three months ended September 30, 2021 was mainly decreased due to the reversal of uncertain tax position accruals based on filing and approval of certain elections by the tax authorities. The effective income tax rates in each period were also impacted by the geographical mix of earnings and state income taxes. 33 Table of Contents Equity in Net Loss of Equity-Method Investees Our equity in net loss from our equity-method investments for the three months ended September 30, 2022 was a loss of $0.4 million compared to $0.5 million in the prior year quarter. See Note 13, Investments , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Net Income Net income for the three months ended September 30, 2022 was $6.9 million, or $0.08 per diluted share, compared to $19.4 million, or $0.20 per diluted share, in the prior year quarter. The decrease was attributable to the factors noted above. Adjusted EBITDA Our Adjusted EBITDA was $36.0 million and $47.3 million for the three months ended September 30, 2022 and 2021, respectively, as a result of the factors discussed above and the adjustments described in the Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures presented following the discussion of our results of operations. On a constant currency basis, adjusted EBITDA decreased by $8.7 million, or 18.3%, from $47.3 million for the three months ended September 30, 2021 to $38.6 million for the three months ended September 30, 2022. Segment Results The following table provides a summary of net sales and operating income (loss) by reportable segment for the three months ended September 30, 2022 and 2021: (dollars in thousands) North America International Corporate and Other Consolidated Net sales Three months ended 9/30/22 $ 288,396 $ 150,955 $ — $ 439,351 Three months ended 9/30/21 265,525 189,378 — 454,903 $ change $ 22,871 $ (38,423) n/a $ (15,552) % change 8.6 % (20.3) % n/a (3.4) % Operating income (loss) Three months ended 9/30/22 $ 24,445 $ 7,675 $ (16,297) $ 15,823 Three months ended 9/30/21 16,842 24,069 (15,364) 25,547 $ change $ 7,603 $ (16,394) $ (933) $ (9,724) % change 45.1 % (68.1) % 6.1 % (38.1) % Operating income margin Three months ended 9/30/22 8.5 % 5.1 % n/a 3.6 % Three months ended 9/30/21 6.3 % 12.7 % n/a 5.6 % North America Our net sales in the North America reportable segment for the three months ended September 30, 2022 were $288.4 million, an increase of $22.9 million, or 8.6%, from net sales of $265.5 million in the prior year quarter. On a constant currency basis, adjusted for the impact of the THWR acquisition and divestitures, net sales increased by 3.4%. In the United States operating segment, adjusted sales were higher compared to the prior year quarter mainly due to stronger sales in snacks, yogurt, baby, and other product categories. In the Canada operating segment, adjusted sales decreased compared to the prior year quarter primarily due to lower sales in personal care product categories. Operating income in North America for the three months ended September 30, 2022 was $24.4 million, an increase of $7.6 million from $16.8 million in the prior year quarter. The increase in operating income was mainly driven by top-line sales due to pricing increases and cost improvements driven by higher productivity, partly offset by inflation and lower net sales in the Canada operating segment when compared with the prior year quarter. 34 Table of Contents International Our net sales in the International reportable segment for the three months ended September 30, 2022 were $151.0 million, a decrease of $38.4 million, or 20.3%, from net sales of $189.4 million in the prior year quarter. On a constant currency basis, net sales decreased 6.7% from the prior year quarter primarily due to a decline in sales in the Europe operating segment, partially offset by an increase in sales in the Ella's Kitchen UK and United Kingdom operating segments. The net sales decrease in the Europe operating segment was primarily due to the loss of a large non-dairy co-manufacturing customer. The net sales increase in the United Kingdom operating segment was due to higher sales of private label grocery items. Operating income in our International reportable segment for the three months ended September 30, 2022 was $7.7 million, a decrease of $16.4 million from operating income of $24.1 million for the three months ended September 30, 2021. Operating income was lower in the current quarter when compared to the prior year quarter mainly due to lower gross profit resulting from a decline in sales, higher energy and supply chain costs, as well as under absorption of overhead costs at our manufacturing facilities. Corporate and Other Our Corporate and Other category consists of expenses related to the Company’s centralized administrative functions, which do not specifically relate to an operating segment. Such Corporate and Other expenses are comprised mainly of compensation and related expenses of certain of the Company’s senior executive officers and other employees who perform duties related to our entire enterprise as well as expenses for certain professional fees, acquisition and divestiture transaction costs, facilities, and other items which benefit the Company as a whole. Our operating loss in Corporate and Other for the three months ended September 30, 2022 was $16.3 million, an increase of $0.9 million, from operating loss of $15.4 million for the three months ended September 30, 2021. This change was primarily due to higher general and administrative expenses mainly on account of higher salaries, wages, and benefits. Refer to Note 17, Segment Information , in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Liquidity and Capital Resources We finance our operations and growth primarily with the cash flows we generate from our operations and from borrowings available to us under our Credit Agreement (as defined below). We believe that our cash flows and borrowing capacity under our Credit Agreement will be adequate to meet anticipated operating and other expenditures for the foreseeable future. On December 22, 2021, the Company refinanced its revolving credit facility by entering into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for senior secured financing of $1,100.0 million in the aggregate, consisting of (1) $300.0 million in aggregate principal amount of term loans (the "Term Loans") and (2) an $800.0 million senior secured revolving credit facility (which includes borrowing capacity available for letters of credit, and is comprised of a $440.0 million U.S. revolving credit facility and $360.0 million global revolving credit facility) (the "Revolver"). Both the Revolver and the Term Loans mature on December 22, 2026. In addition to obligations under the Credit Agreement, we are party to other contractual obligations involving commitments to make payments to third parties, including purchase commitments and lease obligations, which impact our short-term and long-term liquidity and capital resource needs. See Note 7, Leases Our cash and cash equivalents balance decreased $13.7 million at September 30, 2022 to $51.8 million as compared to $65.5 million at June 30, 2022. Our working capital was $336.4 million at September 30, 2022, an increase of $7.4 million from $329.0 million at the end of fiscal 2022. Additionally, our total debt increased by $10.1 million at September 30, 2022 to $898.8 million as compared to $888.6 million at June 30, 2022 as a result of increased net borrowings to manage working capital. As of September 30, 2022, $188.2 million was available under the Credit Agreement as compared to $204.0 million available as of June 30, 2022. The Company was in compliance with all covenants at September 30, 2022. Our cash balances are held in the United States, United Kingdom, Canada, Europe, Middle East, and India. As of September 30, 2022, substantially all of the total cash balance from operations was held outside of the United States. 35 Table of Contents We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of September 30, 2022, all of our investments were expected to mature in less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk. Cash provided by (used in) operating, investing, and financing activities is summarized below. Three Months Ended September 30, Change in (amounts in thousands) 2022 2021 Dollars Cash flows (used in) provided by: Operating activities $ (5,116) $ 37,586 $ (42,702) Investing activities (6,928) (18,054) 11,126 Financing activities 9,824 (63,515) 73,339 Decrease in cash and cash equivalents (2,220) (43,983) 41,763 Effect of exchange rate changes on cash and cash equivalents (11,498) (2,926) (8,572) Net decrease in cash and cash equivalents $ (13,718) $ (46,909) $ 33,191 Cash used in operating activities was $5.1 million for the three months ended September 30, 2022, a decrease of $42.7 million from cash provided by operating activities of $37.6 million in the prior year period. This decrease versus the prior year period resulted primarily from lower cash generation of $31.4 million from our working capital accounts which was mainly due to higher inventory balance and lower accounts payable and reduction of $11.4 million in net income adjusted for non-cash charges in the current period. Cash used in investing activities was $6.9 million for the three months ended September 30, 2022, a decrease of $11.1 million from $18.1 million in the prior year period primarily due to lower capital expenditure in the current period due to phasing of capital projects. During the three months ended September 30, 2022, $7.2 million of capital expenditures were incurred on account of capital projects primarily related to the United States and the United Kingdom operating segments. Cash provided by financing activities was $9.8 million for the three months ended September 30, 2022, an increase in cash provided of $73.3 million compared to $63.5 million of cash used in the prior year period. The increase in cash provided by financing activities was primarily due to no share repurchases under our repurchase program during the three months ended September 30, 2022. Operating Free Cash Flows Our operating free cash flows were negative $12.3 million for the three months ended September 30, 2022, a decrease of $32.1 million from $19.8 million in the three months ended September 30, 2021. This decrease versus the prior year period resulted primarily from a decrease in cash flows from operations of $42.7 million driven by the reasons explained above. The decrease was partially offset by $10.6 million due to lower property, plant and equipment purchases in the current period. See Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures following the discussion of our results of operations for definitions and a reconciliation from our net cash provided by operating activities to operating free cash flows. Share Repurchase Program In January 2022, the Company’s Board of Directors authorized the repurchase of up to $200.0 million of the Company’s issued and outstanding common stock. Repurchases may be made from time to time in the open market, pursuant to pre-set trading plans, in private transactions or otherwise. The current 2022 authorization does not have a stated expiration date. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations. During the three months ended September 30, 2022, the Company repurchased no shares under the repurchase program. As of September 30, 2022, the Company had $173.5 million of remaining authorization under the share repurchase program. Reconciliation of Non-U.S. GAAP Financial Measures to U.S. GAAP Measures We have included in this report measures of financial performance that are not defined by U.S. GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. For each of these non-U.S. GAAP financial measures, we are providing below a reconciliation of the differences between the non-U.S. GAAP measure and the most directly comparable U.S. GAAP measure, an explanation of why our management and 36 Table of Contents Board of Directors believe the non-U.S. GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-U.S. GAAP measures. These non-U.S. GAAP measures should be viewed in addition to, and not in lieu of, the comparable U.S. GAAP measures. Net Sales - Constant Currency Presentation We believe that net sales adjusted for the impact of foreign currency provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present net sales adjusted for the impact of foreign currency, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. Net Sales - Adjusted for the Impact of Acquisitions, Divestitures and Discontinued Brands We also exclude the impact of acquisitions, divestitures and discontinued brands when comparing net sales to prior periods, which results in the presentation of certain non-U.S. GAAP financial measures. The Company's management believes that excluding the impact of acquisitions, divestitures and discontinued brands when presenting period-over-period results of net sales aids in comparability. To present net sales adjusted for the impact of acquisitions, the net sales of an acquired business are excluded from fiscal quarters constituting or falling within the current period and prior period where the applicable fiscal quarter in the prior period did not include the acquired business for the entire quarter. To present net sales adjusted for the impact of divestitures and discontinued brands, the net sales of a divested business or discontinued brand are excluded from all periods. A reconciliation between reported net sales and net sales adjusted for the impact of foreign currency, acquisitions, divestitures and discontinued brands is as follows: (amounts in thousands) North America International Hain Consolidated Net sales - Three months ended September 30, 2022 $ 288,396 $ 150,955 $ 439,351 Acquisitions, divestitures, and discontinued brands (16,006) — (16,006) Impact of foreign currency exchange 1,068 25,786 26,854 Net sales on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands - Three months ended September 30, 2022 $ 273,458 $ 176,741 $ 450,199 Net sales - Three months ended September 30, 2021 $ 265,525 $ 189,378 $ 454,903 Divestitures and discontinued brands (949) — (949) Net sales adjusted for divestitures and discontinued brands - Three months ended September 30, 2021 $ 264,576 $ 189,378 $ 453,954 Net sales growth (decline) 8.6 % (20.3) % (3.4) % Impact of acquisitions, divestitures, and discontinued brands (5.6) % — % (3.3) % Impact of foreign currency exchange 0.4 % 13.6 % 5.9 % Net sales growth (decline) on a constant currency basis adjusted for acquisitions, divestitures and discontinued brands 3.4 % (6.7) % (0.8) % Adjusted EBITDA Adjusted EBITDA is defined as net income before net interest expense, income taxes, depreciation and amortization, equity in net loss (income) of equity-method investees, stock-based compensation, net, unrealized currency gains and losses, litigation and related costs, plant closure related costs, net, productivity and transformation costs, warehouse and manufacturing 37 Table of Contents consolidation and other costs, costs associated with acquisitions, divestitures and other transactions, gains or losses on sales of assets and businesses, inventory write-downs, impairment of long-lived assets and intangibles and other adjustments. The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation. Adjusted EBITDA is a non-U.S. GAAP measure and may not be comparable to similarly titled measures reported by other companies. We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with U.S. GAAP results. A reconciliation of net income to Adjusted EBITDA is as follows: Three Months Ended September 30, (amounts in thousands) 2022 2021 Net income $ 6,923 $ 19,411 Depreciation and amortization 11,970 10,855 Equity in net loss of equity-method investees 382 526 Interest expense, net 7,279 1,146 Provision for income taxes 2,631 4,542 Stock-based compensation, net 3,994 4,287 Unrealized currency gains (1,711) (1,023) Litigation and related costs Litigation expenses 2,463 1,956 Proceeds from insurance claim — (196) Restructuring activities Plant closure related costs, net (2) 996 Productivity and transformation costs 773 3,204 Warehouse/manufacturing consolidation and other costs — 2,289 Acquisitions, divestitures and other Transaction and integration costs, net 1,367 (231) Gain on sale of assets (40) (446) Adjusted EBITDA $ 36,029 $ 47,316 Adjusted EBITDA - Constant Currency Presentation We believe that this measure provides useful information to investors because it provides transparency to underlying performance in adjusted EBITDA by excluding the effect that foreign currency exchange rate fluctuations have on year-to-year comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period adjusted EBITDA for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year. 38 Table of Contents A reconciliation between adjusted EBITDA and constant currency adjusted EBITDA is as follows: (amounts in thousands) Hain Consolidated Adjusted EBITDA - Three months ended September 30, 2022 $ 36,029 Impact of foreign currency exchange 2,619 Adjusted EBITDA on a constant currency basis - Three months ended September 30, 2022 $ 38,648 Adjusted EBITDA - Three months ended September 30, 2021 $ 47,316 Operating Free Cash Flows In our internal evaluations, we use the non-U.S. GAAP financial measure “Operating Free Cash Flows.” The difference between Operating Free Cash Flows from continuing operations and cash flows provided by or used in operating activities, which is the most comparable U.S. GAAP financial measure, is that Operating Free Cash Flows reflects the impact of purchases of property, plant and equipment (capital spending). Since capital spending is essential to maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash. As such, we believe investors should also consider capital spending when evaluating our cash provided by or used in operating activities. We view Operating Free Cash Flows as an important measure because it is one factor in evaluating the amount of cash available for discretionary investments. We do not consider Operating Free Cash Flows in isolation or as an alternative to financial measures determined in accordance with U.S. GAAP. A reconciliation from cash flows (used in) provided by operating activities to Operating Free Cash Flows is as follows: Three Months Ended September 30, (amounts in thousands) 2022 2021 Net cash (used in) provided by operating activities $ (5,116) $ 37,586 Purchases of property, plant and equipment (7,215) (17,810) Operating free cash flows $ (12,331) $ 19,776 We believe that our cash on hand of $51.8 million at September 30, 2022 as well as projected cash flows from operations and availability under our Credit Agreement are sufficient to fund our working capital needs in the ordinary course of business, anticipated fiscal 2023 capital expenditures and other expected cash requirements for at least the next 12 months. Critical Accounting Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to variable consideration, valuation of accounts and chargeback receivable, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , of our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, from which there have been no material changes. Recent Accounting Pronouncements There were no recently adopted accounting pronouncements or recently issued accounting pronouncements not yet effective that the Company believes will have a significant impact on its consolidated financial statements. 39 Table of Contents Seasonality Certain of our product lines have seasonal fluctuations. Hot tea, hot-eating desserts and soup sales are stronger in colder months, while sales of snack foods, sunscreen and certain of our personal care products are stronger in the warmer months. As such, our results of operations and our cash flows for any particular quarter are not indicative of the results we expect for the full year, and our historical seasonality may not be indicative of future quarterly results of operations.